WSJ: Consumers in China and Brazil Discover Debt

Number of the Week: Consumers in China, Brazil Discover Debt.Number of the Week
17.1%17.1%: The rise in Chinese credit-card balances in 2009.

While consumers throughout the developed world struggle to shed debt, their counterparts in China and Brazil are piling it on.

In 2009, the year the global recession hit bottom, the aggregate credit-card balances of Chinese consumers rose 17.1% even as those of U.S. consumers fell 8.7%, according to a study by financial consultancy Lafferty Group. Brazilians increased their balances by 28.9%, part of a 9.2% rise throughout Latin America.

More people going into debt might not sound like a desirable development, but in some ways this could be. One of the global economy’s biggest problems has been its dependence on an overstretched U.S. consumer. If folks in places such as China and Brazil are now stepping up and taking on some of the burden, that could provide some much-needed rebalancing.

To be sure, the picture is still unclear. The U.S. is running a large current-account deficit, which means Americans are still spending more than they earn, while the rest of the world — including China — saves to make up the difference.

The data from Lafferty, though, suggest at least the potential for that picture to change. As of 2009, China, Brazil, India and Russia had a total combined credit-card balance of $143 billion, still a far cry from the U.S.’s $849 billion but getting into the same league. Two Chinese banks were among the global top ten by number of cards issued.

The danger, of course, is that consumers in the developing world get themselves into the kind of credit bubble that triggered the most recent global crisis. By international debt standards, it looks like they have a way to go. China’s total credit-card balances amounted to only 2.4% of the country’s annual economic output, compared to 6.0% in the U.S. Brazil’s stood at less than 1%, and India’s was even smaller.

In other words, a little well-placed profligacy might yet do the world some good.

NATU3.SA, Natura Cosmeticos SA (R$46.50) /Listening to Customers and Reps

NATU3.SA, Natura Cosmeticos SA (R$46.50) /Listening to Customers and Reps

Lore.Serra@morganstanley.com, Jeronimo.De.Guzman

We present our findings from a joint project with our US team that surveyed 800 women in Brazil, spread across income classes and geographies, as well as 90 reps for Natura and Avon. We compare our findings with a similar survey we conducted five years ago, to gauge the underlying trends in the beauty industry in Brazil. We also update our earnings estimates for Natura to reflect stronger near-term growth. We expect that the pace of growth in the Brazilian beauty industry will slow to 10-12% per year over the next five years, vs. the 14-15% growth pace since 2005. Our survey data suggests that a disproportionate amount of historical growth came from Class C consumers. These consumers now spend at high levels relative to their A/B counterparts, who have increased consumption at much lower rates.

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